It’s that time of year again — tax time.
As a small business owner, it is important to ensure you are paying taxes on your bottom line. So, if you need straight-forward advice on how to (potentially) avoid audits and claim deductions here are five tips to ease the burden of tax time preparations this year.
1. Keep Good Records
The most important thing you can do to prepare for tax time is to maintain a complete and accurate set of books — as well as adequate documentation. In other words, keep your receipts! Without proper documentation, the IRS may disallow your business expenses. Good record-keeping goes a long way toward ensuring that nothing is missed.
2. Separate Business and Personal Expenses
The IRS scrutinizes personal expenses that may have been claimed as a business expense. Maintain a separate bank and credit card for your business.
3. Deduct to Your Advantage
For starters, it is beneficial to take note of certain deductions that allow you to subtract business costs from gross income. There are a handful of business expenditures that qualify as deductions, including:
a. Save on Startup Costs: The costs of launching a business are considered capital expenses. You may deduct $5,000 your first year in business.
b. Business-related Education: You can deduct educational expenses that maintain or improve skills required in your present employment, this includes seminars, classes, convention fees, etc.
c. Commuting to and from the Office: Commuters may have missed the news that the fiscal cliff legislation signed by President Obama contains a provision that allows employers to offer up to $240 a month in tax-free benefits to employees who use public transportation or a vanpool to get to work. That’s an increase from $125 a month under old IRS rules.
Employers can get a tax deduction by providing the Commuter Choice benefit or save on payroll taxes by allowing employees to use pre-tax dollars to buy transit passes or pay vanpool costs. Employees also save on federal income taxes.
d. Work From Home Perks: Not only does a home-office allow you to work in last night’s pajamas, it also makes you eligible for home-office deductions. As long as the designated “office” space within your home is used exclusively for business purposes, you might be able to deduct a handful of things ranging from a portion of your rent and utilities to internet costs and repairs.
e. Self-employed Health Insurance: The self-employed health insurance deduction is one of the most significant deductions you can take as a small business owner. You may be qualified to deduct premiums paid on qualified long-term-care insurance, medical and dental insurance not only for yourself, but for your spouse and dependents that are under the age of 27.
4. E-file for Free
Tax payers making $57,000 or less may be eligible to use free tax preparation software and electronic filling. The software completes the forms from a series of questions that allow you to input your information. Those making in excess of $57,000 can e-file for free using free fillable file forms, which provide the forms, but do not include the tax preparation software.
5. Utilize Small Business Jobs Act Tax provisions
This was signed into law in 2010 by President Obama, and it has nearly 20 initiatives aimed at decreasing the tax burden and providing savings for small businesses.
Connect with Greg on Twitter.
Did you enjoy this article? If so, subscribe to YFS Magazine and never miss an update. Don’t forget to make our friendship official and join Young, Fabulous, and Self-Employed entrepreneurs on Facebook.
Greg Jones, CEO of BookKeeping Express, the first US franchise focused solely on bookkeeping services, and owner of a handful of Five Guys Burgers and Fries restaurants. In an interview, Jones can share critical information and tips (including specific processes and procedures) on how to save small business owners money, time and pain.
© YFS Magazine. All Rights Reserved. Copying prohibited. All material is protected by U.S. and international copyright laws. Unauthorized reproduction or distribution of this material is prohibited. Sharing of this material under Attribution-NonCommercial-NoDerivatives 4.0 International terms, listed here, is permitted.